This paper studies the consequences of regulating executive compensation at financial institutions by examining the introduction of the UK Remuneration Code in 2010, which aimed to change the decision‐making horizon and risk‐taking incentives of bank executives. We find that, although both banks and nonbanks show increased contribution and sensitivity to systemic risk in the United Kingdom post‐2010, this increase is lower for UK banks, in line with the intent of the regulation. However, UK banks also experience higher unforced CEO turnover when compared to other UK firms. Therefore, while the regulation may have had the desired effect on systemic risk, it may also have given rise to some unintended consequences.

In this paper, we first document evidence of underreaction to management forecast news. We then hypothesize that the credibility of the forecast influences the magnitude of this underreaction. Relying on evidence that more credible forecasts are associated with a larger reaction in the short window around the management forecasts and a smaller post-management forecast drift in returns, we show that the magnitude of the underreaction is smaller for firms that provide more credible forecasts. Our paper contributes to the literature by providing out-of-sample evidence of the drift in returns documented in the post-earnings-announcement drift literature, with the credibility of the news being one explanation for the phenomenon.

We use the ethnicity of CEOs across 31 countries as a proxy for their common inherited beliefs and values and find an ethnicity effect in CEO variable pay. We find that the ethnicity effect in variable pay is not driven by the ethnicity effects in corporate policy decisions, and that changes in CEO compensation are significantly larger when CEOs are replaced with a person from a different ethnicity. Our estimated ethnicity effect captures the future time reference and religion of CEOs’ ancestors. Finally, we find an ethnicity effect in performance-firing sensitivities (i.e., the sensitivity to being fired due to poor performance).

We outline a systematic approach to incorporate macroeconomic information into firm level forecasting from the perspective of an equity investor. Using a global sample of 198,315 firm-years over the 1998–2010 time period, we find that combining firm level exposures to countries (via geographic segment data) with forecasts of country level performance, is able to generate superior forecasts for firm fundamentals. This result is particularly evident for purely domestic firms. We further find that this forecasting benefit is associated with future excess stock returns. These relations are stronger after periods of higher dispersion in expected country level performance.

We survey recent research in accounting anomalies and fundamental analysis. We use forecasting of future earnings and returns as our organizing framework and suggest a roadmap for research aiming to document the forecasting benefits of accounting information. We combine this with opinions from the academic and practitioner communities to critically evaluate key clusters of papers about accounting anomalies and fundamental analysis disseminated over the last decade. Finally, we provide a new analysis on how an ex ante and ex post treatment of risk and transaction costs affects the accrual and PEAD anomalies, and offer suggestions for future research.

This paper lays out a decomposition of book‐to‐price (B/P) that derives from the accounting for book value and that articulates precisely how B/P “absorbs” leverage. The B/P ratio can be decomposed into an enterprise book‐to‐price (that pertains to operations and potentially reflects operating risk) and a leverage component (that reflects financing risk). The empirical analysis shows that the enterprise book‐to‐price ratio is positively related to subsequent stock returns but, conditional upon the enterprise book‐to‐price, the leverage component of B/P is negatively associated with future stock returns. Further, both enterprise book‐to‐price and leverage explain returns over those associated with Fama and French nominated factors—including the book‐to‐price factor—albeit negatively so for leverage. The seemingly perverse finding with respect to the leverage component of B/P survives under controls for size, estimated beta, return volatility, momentum, and default risk.

This paper extends the work of Sloan (1996. The Accounting Review 71, 289) by linking accrual reliability to earnings persistence. We construct a model showing that less reliable accruals lead to lower earnings persistence. We then develop a comprehensive balance sheet categorization of accruals and rate each category according to the reliability of the underlying accruals. Empirical tests generally confirm that less reliable accruals lead to lower earnings persistence and that investors do not fully anticipate the lower earnings persistence, leading to significant security mispricing. These results suggest that there are significant costs associated with incorporating less reliable accrual information in financial statements.

We study whether executives receive pay premiums for the uncertainty of their match with a new firm. Using changes in executive-firm matches from Execucomp, we document that executives receive significant attraction premiums when they move to new firms. These premiums vary with proxies that capture potential sources of uncertainty about the quality of the match, and are incremental to pay for managerial talent, generalist ability, industry turnover risk, and potential additional costs incurred by the new employer to attract the executive to the firm, such as payments for forfeited equity and relocation costs. Consistent with compensation for uncertainty of fit, we find that the premiums decrease with the executive's tenure at the new firm, as the uncertainty about the executive-firm match is resolved over time. Our findings raise the possibility that attraction premiums are an additional cost of executive turnover and may contribute to the overall rise in executive pay. JEL Classifications: J24; J33; M12; M52. Data Availability: Data are available from sources cited in the text.